Peterson May Ditch Pension Bond Deal

Mayor Bart Peterson may ditch his planned $460 million pension bond obligation issue to shore up city finances and, instead, leave the decision up to his successor. Peterson planned to use some of the revenues from the 65% increase in the COIT to pay debt service on the proposed pension bond obligation issue. Mayor-elect Greg Ballard wants the state to assume the debt. The Indiana Daily Insight, quoting Bond Buyer, reports:

Bond Buyer reports that "Indianapolis’ planned $460 million pension obligation bond issue, a key piece of Mayor Bart Peterson’s plan to shore up the city’s finances, is up in the air following his surprise defeat last week at the hands of Greg Ballard, who campaigned on promises to hold down debt and eliminate property taxes. With Peterson out at the end of the year, the pension obligation bond is one of several projects and financial plans that have come under renewed scrutiny. As a result, officials have yet to decide whether they will move forward with the deal under the current administration or wait until Ballard takes office, said Barbara A. Lawrence, executive director of the Indianapolis Bond Bank. “It was our intent to move forward with the bond issue, and obviously that is still an option, but we are weighing our options given what happened in the election last week,” Lawrence said. The bank — which would serve as the issuer for the pension deal — plans to decide by next week. While Lawrence left the door open to moving forward, it still requires city/county counci approval. If the deal is put off until Ballard takes office, it’s uncertain whether the city would proceed as Ballard has said in published reports that he wants the state to assume the liability. Other debt transactions that may come under fresh review include a convention center hotel financing, some refunding issues, and possibly a water works issue, Lawrence said ... “From a timing standpoint, with the change in leadership at the city, we want to review that process again and see if it’s prudent to proceed at this time” .... Under Peterson’s proposal, the pension obligation bond issue would fully fund the city’s currently under funded pre-1977 police and fire pension funds. The post-1977 police and fire pension plans are mostly funded. A first lien on the county option income tax would secure the bonds. Raising the local option income tax to 1.65% from 1% was a key part of balancing Peterson’s 2008 budget, which earmarks $30 million to cover debt service on the pension issue. The income tax increase, estimated to raise an additional $87 million, also will fund public safety programs and compensate for a decrease in the city’s property tax levy. Some observers say Peterson’s measure to raise the income tax at a time when rising property taxes have sparked protests across the state cost the Democratic incumbent the election to a Republican political newcomer .... Standard & Poor’s ... revised its outlook on the city’s AAA GO credit to stable from negative, citing the income tax increase as leading to a structurally balanced budget, as well as the city’s plans to fund the outstanding pension liability. “We feel the city has made strides toward getting their budget back into structural balance,” analyst Eden Perry said. “We’re not going to have a knee-jerk response to the city putting it on hold.” Fitch Ratings rates it AAA and Moody’ Investors Service rates the city Aa1. The city has $318 million of debt that carries an unlimited-tax pledge."